Bankruptcy

Debt after Death: What Happens when a Debtor Dies

By Chris Kramer

What happens to your debt after you die is not a topic that?s likely to come up on its own at the dinner table, but it?s a good idea to talk about this matter anyway. It?s important for you and your loved ones to know when you?re responsible for each other?s debts post-mortem—and when you?re not.

A recent post from WalletPop.com offers an outline of what to expect after the death of a family member who owed money. Here?s a summary.

• Can debt be inherited? In most cases, debt does not automatically pass from one family member to the next, according to sources. That means that, if you receive a letter from a creditor demanding payment on a loved one?s debt after his demise, it?s a good idea to do some research before paying.
• Debt in community property states: One of the exceptions to the above rule has to do with state law. If you live in a community property state (find out here), you can inherit debt from a dead spouse (but not from a sibling or parent).
• The link between debt & inheritance: Another exception involves the relationship between a person?s debts and her legacy. If, for example, a parent dies and leaves you money or a house in addition to consumer debt, you?re legally obligated to pay the debt before collecting the inheritance.
• What about debt from a co-signed loan? If you co-signed a loan for a family member or friend and that person passes away, you are responsible for paying the remainder of the loan.

How to Know if You?re Responsible for a Debt

One unfortunate truth about debt and death is that some creditors might try to collect on a debt whether or not it?s legal for them to do so. Worse, some scam artists may specifically target survivors in an attempt to trick them into paying money they don?t really owe.

If you?re mourning a loved one, the last thing you likely want to deal with is finances, but following these guidelines might help protect you from fraudsters:

• Avoid sending a creditor any money at all until you?re sure that you are actually responsible for repaying a debt.
• To determine your obligations, ask the creditor to send you written documentation of the debt?s original purpose, the terms of the debt and the exact amount currently owed.
• If possible, consult an attorney to help you work through the complexities of covering debt?s after a loved one?s demise.

Full post as published by The Bankruptcy Blog on August 27, 2010 (boomark / email).